California Supreme Court – Arbitrator Decides Whether Parties Agreed To Arbitrate Class Action

California Supreme Court Says Arbitrator Decides Whether Parties Agreed To Arbitrate Class Action Claims

In a highly anticipated decision, the California Supreme Court ruled that the question of whether parties to an arbitration agreement agreed to arbitrate class action claims is a question to be decided by the parties’ arbitrator and not by a court. Sandquist v. Lebo Automotive, Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 7663 (California Supreme Court July 28, 2016) .

Specifically, the question decided by the California Supreme Court was: when the parties to a dispute disagree over whether class action claims are subject to arbitration, “who decides whether the [arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator?” (2016 DJDAR at 7663.) The answer to that question is of supreme importance to parties who may find themselves in arbitration, because everyone, rightly or wrongly, suspects that judges and arbitrators are likely to reach opposite conclusions when construing identical arbitration agreements, with courts more likely to find that the parties have not agreed to classwide arbitration and arbitrators more likely to find that they did agree.

The plaintiff, Timothy Sandquist, worked for defendant Lebo Automotive, Inc. Mr. Sandquist, who is African-American, sued Lebo Automotive, alleging that he and other non-Caucasian employees were subjected to racial discrimination, harassment, and retaliation. Mr. Sandquist sought to sue not only on his own behalf but also “on behalf of a class of current and former employees of color.” (2016 DJDAR at 7663.) Lebo Automotive moved to compel arbitration based on three separate yet similar arbitration agreements that Mr. Sandquist signed on his first day of employment. The trial court granted the motion. The court also concluded that the arbitration agreements did not permit class arbitration. Therefore, the court struck the class allegations from the case.  Mr. Sandquist appealed.

The court of appeal reversed the trial court and concluded that the arbitrator rather than the trial court should decide “the availability of class proceedings under an arbitration agreement.” (2916 DJDAR 7664.) Not surprisingly, Lebo Automotive sought review by the California Supreme Court, which affirmed the decision of the court of appeal.

The California Supreme Court noted that all three arbitration agreements contained “comprehensive” language describing what claims were subject to arbitration. For example, one of the agreements encompassed “any claim, dispute or controversy . . . which would otherwise require or allow resort to any court or other governmental dispute resolution forum” “arising from, related to, or have any relationship or connection whatsoever with my seeking employment with, employment by, or other association with the Company . . . .” (2016 DJDAR at 7665.) Since the dispute over who decides whether class claims are arbitrable is related to claims arising from Mr. Sandquist’s employment, the California Supreme Court concluded that the language of the arbitration agreements “suggests” that the question is for the arbitrator, but is “by no means conclusive.” (2016 DJDAR at 7665.) The Court, therefore, looked to California law “applicable to the interpretation of arbitration clauses and contracts generally.” (2016 DJDAR at 7665.)

The Court noted that two principles of contract interpretation favor leaving the question to the arbitrator: (1) “when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration”; and (2) “ambiguities in written agreements are to be construed against the drafters” (in this case, the employer, Lebo Automotive). (2016 DJDAR at 7666.) Thus, the Court concluded, “as a matter of state contract law, the parties’ arbitration provisions allocate the decision on the availability of class arbitration to the arbitrator, rather than reserving it for a court.” (2016 DJDAR at 7666.)

If Mr. Sandquist’s lawsuit were governed solely by California law, this would have been the end of the Court’s analysis. However, each of the three arbitration agreements between Mr. Sandquist and Lebo Automotive invokes the coverage of the Federal Arbitration Act. Therefore, the California Supreme Court also looked to recent decisions of the U.S Supreme Court relating to arbitration.

The Court noted that in Green Tree Financial Corp. v. Bazzle (2003) 539 U.S. 444 (“Green Tree”) a plurality of the U.S. Supreme Court concluded that the question of whether the parties had agreed to arbitrate class claims should be decided by the arbitrator rather than the courts.

But here’s the rub: Green Tree was a plurality decision, not a majority decision. Therefore, Green Tree does not constitute controlling precedent. As the California Supreme Court noted, the U.S. Supreme Court “has twice reiterated” this fact. (2016 DJDAR at 7667.) In addition, notwithstanding the Green Tree decision, all of the federal appellate courts that have been confronted with this question, have ruled that the trial court rather than the arbitrator must decide whether the parties agreed to class arbitration.

Justice Kruger dissented in Sandquist v. Lebo Automotive, in an opinion joined in by Justices Chin and Corrigan. She conceded that the majority’s decision is supported by the plurality opinion in Green Tree. However, but she noted that the U.S. Supreme Court appears to be heading in a direction contrary to Green Tree, which has resulted in the federal appellate decisions holding that a court rather than the arbitrator should decide whether the parties agreed to conduct the classwide arbitration. Justice Kruger concluded by saying, “unless and until the [U.S. Supreme Court] revisits the issue, I would follow where the court has led. Because the majority today charts a different path, I must respectfully dissent.” (2016 DJDAR 7675.)

The California Supreme Court majority in Sandquist v. Lebo Automotive is on solid ground analytically. However, Justice Kruger and her fellow dissenters may well have correctly divined where the U.S. Supreme Court is headed on this issue. Thus, this case could well be headed to the U.S. Supreme Court.

Ezer Williamson Law Announces Affiliation With Leven & Seligman, LLP

Ezer Williamson Law is proud to announce its formal affiliation with Century City’s Leven & Seligman, LLP.  With this association, both firms build on their reputations for superior quality, client service, and results.

The association will enable both firms to add depth and breadth to their existing practice areas of Real Estate Law and Litigation, Business and Corporate Transactions, Business and Commercial Law and Litigation, Partnership and Member Disputes, Shareholder Rights, Business Formation, and Estate Planning and Administration.

As part of the affiliation, Ezer Williamson Law gains a physical presence at Leven & Seligman, LLP’s offices in Century City, located at 1801 Century Park East, Suite 1460, Los Angeles, California to further serve Ezer Williamson Law’s West Los Angeles and Valley clients.  The association will also provide Leven & Seligman, LLP with the Ezer Williamson Law South Bay office.

What is the Parol Evidence Rule?

A key part of understanding why an integration clause is important is understanding what the parol evidence rule is.

What is the Parol Evidence Rule?

Generally speaking, the parol evidence rule bars (or keeps out) extrinsic evidence of a prior or contemporaneous agreement.  In English, this means that once parties to a contract sign and agree to the terms of the contract, the parol evidence rule will keep the parties to the agreement from trying to submit prior oral or written statements to modify or contradict terms or clauses in the contract.

Take the example we posted in our previous blog post on integration clauses.  In that example, Party B agreed to buy “industry standard gears” for a specified sum, but in Party B’s conversations with Party A, they discussed “type-1” gears.  Thus, when Party A delivers “type 3” gears, Party B will go to court and attempt to submit parol evidence that the agreement was for 100 “type-1” gears.

As we noted in prior posts, the parol evidence rule is codified in California Code of Civil Procedure section 1856, which states that the “[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.”   Likewise,  California Civil Code section 1625 states that “[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”

As we explained in our prior blog post, most contracts have an integration clause, which will be used  to determine whether the contract is “a final expression” of the parties’ agreement.  Assuming that is the case, a party will have to show that an exception to the parol evidence rule applies.

What are the Exceptions to the Parol Evidence Rule?

Generally, the parol evidence rule will not allow a party to a written agreement to submit prior inconsistent statements (written or oral), although there are exceptions.  The following general circumstances are exceptions to the parol evidence rule:

  • Incomplete writings
  • Collateral or independent agreements
  • Subsequent agreements
  • Ambiguity or uncertainty in instrument
  • Illegality or bad faith
  • Fraud
  • Mistake
  • Lack of consideration

If one of these exceptions applies a party may then be able to submit evidence that was prior to or contemporaneous with the written contract in order to explain or contradict the terms of the deal.

Ninth Circuit: Section 16600 Applies to Settlements

Section 16600 of the California Business and Professions Code prohibits contracts from restraining individuals “from engaging in a lawful profession, trade, or business of any kind.”  While the reach of Section 16600 is broad (recently reaching as far as the  Delaware Court of Chancery), it has traditionally been applied only to employment contracts or agreements that contain non-competition or non-compete clauses where the former employee is prevented from working with a competitor.

But what about a settlement agreement that prohibits employment with a former employer, i.e., an agreement that a former employee can only work for competitors?  Last week the 9th Circuit Court of Appeals addressed that very issue in Golden v. California Emergency Physicians Medical Group, No. 12-16514, 2015 WL 1543049 (Apr. 8, 2015).

In that case, Donald Golden (“Golden”), an emergency room doctor, sued his former employer, California Emergency Physicians Medical Group (“CEP”), and others alleging various causes of action including racial discrimination.  In open court CEP agreed to pay a “substantial monetary amount” to Golden, and Golden agreed to withdraw his claims against CEP and “waive any and all rights to employment with CEP or at any facility that CEP may own” now and in the future.  (Notably, CEP is a consortium of more than 1,000 physicians and staffs and manages emergency rooms and inpatient centers throughout California.) 

Golden later refused to sign the settlement agreement.  The district court ultimately granted a motion by Golden’s former counsel to intervene and ordered that the settlement agreement be enforced. Golden appealed to the 9th Circuit on the single issue that the settlement agreement was void under Section 16600.

After addressing the issue of ripeness, the majority began by noting that the California Supreme Court had not ruled on whether Section 16600 applies outside of “typical so-called ‘non-compete covenants,’” and specifically “whether a contract can impermissibly restrain professional practice, within the meaning of the statute, if it does not prevent a former employee from seeking work with a competitor and if it does not penalize him should he do so.”

The majority found that the breadth of the statute meant that Section 16600 was not so limited and that the district court improperly determined that the settlement agreement need not comply with Section 16600.  As the court noted, Section 16600 prohibits “every contract” (not specifically excepted by another statute) that “restrain[s]” someone “from engaging in a lawful profession, trade, or business.”  Therefore, Section 16600 applies to all such restrictions “no matter [their] form or scope.”  The case was reversed and remanded to the district court for further proceedings.

Notably, former 9th Circuit chief justice Alex Kozinski filed  a dissenting opinion accusing the majority of ruling on the case despite the fact that, according to him, “the settlement agreement does not limit Dr. Golden’s ability to practice his profession at this time—except to the extent that he can’t work for CEP.”  In his opinion, the majority misconstrued Section 16600 and allowed it to preserve “an unfettered right to employment in all future circumstances, no matter how remote or contingent.”  Judge Kozinski would have dismissed the case for lack of standing until Golden had actually been fired or denied a position due to the settlement agreement. 

Contract Law: Defining Conflicting Terms- Part 2

Previously on the blog, we discussed ambiguous and conflicting terms in contracts. Most contracts include clauses which provide interpretation rules for ambiguous and conflicting terms. In the absence of such a clause (or if the provisions of the clause do not resolve the conflict), certain California statutes, and case law interpreting and applying those rules, will provide the method of determining  which, if any, ambiguous or conflicting terms can be enforced.

Generally speaking, an ambiguous term can reasonably be read in more than one way.  Likewise, a conflicting term exists where compliance with one or more contractual provisions would violate another contractual provision.

The California Legislature codified contract interpretation rules in the California Civil Code to cover a variety of circumstances that can arise with ambiguous or conflicting terms. A summary of a few of the most common principles  follows below.

Contract Interpretation in General

  • A contract must be interpreted to give effect to the mutual intention of the parties as they existed at the time of contracting, so far as such intentions are both ascertainable and lawful. Civil Code § 1636
  • The whole of a contract should be taken together, so as to give effect to every part, if reasonably practicable, with each clause helping to interpret the other. Civil Code § 1641
  • Several contracts relating to the same matters, between the same parties, and made as part or parts of substantially one transaction, are to be taken together. Civil Code § 1642
  • A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates. Civil Code § 1647
  • No matter how broad a contract is, it extends only to those things the parties intended to contract. Civil Code § 1648
  • Inconsistencies in a contract must be reconciled, if possible, by an interpretation that will give some effect to the inconsistent clauses, subordinate to the general intent and purpose of the whole contract. Civil Code § 1652

Interpreting Specific Contract Language

  • Contract language should be understood in an ordinary and popular sense, not in its strict legal meaning. The exception to this is when parties use words meant to be taken in a technical sense. For example, construction contracts often use language that references published trade standards, which can be used to interpret the contract. Civil Code § 1644
  • Technical words should be interpreted as usually understood by individuals in the profession or business to which they relate, unless clearly used in a different sense. Civil Code § 1645
  • Contract words that are wholly inconsistent with a contract’s nature, or with the main intention of the parties, are to be rejected. Civil Code § 1653

If you have any questions about ambiguous or conflicting terms in a contract, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

Using Power of Attorney in a Real Estate Transaction

A power of attorney is a legal document that grants a person the legal authority to sign documents and enter into transactions on someone else’s behalf.  If you give a trusted professional, friend, or family member power of attorney, their signature on your behalf is legally effective to the same extent as if you had signed.

There are several reasons why you may give someone power of attorney, such as anticipation of your own incapacity or extended travel. In the actual power of attorney document, you can limit the extent of an individual’s powers to sign agreements on your behalf. For example, you may give someone power to only handle medical or only financial matters.

Similarly, some power of attorneys are granted specifically for real estate transactions only.  In fact there are often practical considerations that weigh in favor of considering a power of attorney in a real estate transaction. If you are in the middle of a real estate purchase or sale, it can be hard to predict a close of escrow date, or difficult to coordinate a close date with work or leisure travel schedules.  By granting your attorney or other trusted professional power of attorney in a real estate transaction, he or she can sign all the closing documents while you maintain your travel plans.

Another reason to consider a power of attorney for real estate transactions is to protect your interests in the event of your incapacity. Planning for incapacity by creating a power of attorney can make sure your real estate is taken care of as you intend by allowing someone else to step in and take care of your property for you.

Always remember that when an individual uses their power or attorney to sign on your behalf, they are binding you to all agreements just as if you had signed them yourself. A power of attorney does not absolve you of any future responsibilities or obligations associated with a real estate transaction.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

What is a Change Order in a Construction Contract?

“No prudent individual would make a contract for the construction of a building of any magnitude without incorporating a provision somewhere making specific and definite arrangements concerning extra work.” City Street Improvement Company v. Kroh, 158 Cal. 308, 321 (1910).

Previously on our blog, we discussed how changes to construction contracts are often unavoidable, but that there are limitations to how much a construction contract can change. In this article, we will discuss the proper tool for acceptable change requests: the “change order.”

A change order is essentially an amendment to a construction contract. It represents the mutual consensus between the parties on a change to the schedule, price, work, or other contract term.  Like any other contract amendment, a change order has to meet the requirements of valid contract formation (offer, acceptance, reasonable identification of changed terms, exchange of consideration, and be signed by both parties).

A change order should always be accompanied by documentation, such as original contract documents, emails discussing the change, revised plans and specifications, meeting minutes, and any other reports that might be related to the change order.  Change orders and associated documents should be kept on file with all other project records.  Moreover, since the statute of limitations for most construction claims is ten years, every contract, change order, and supporting document for a change order should be kept at least that long. Finally, it is especially important to determine and document the cost of a change order.

If you have questions about construction contract claims, consult an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

What is Incorporation by Reference in a Contract?

Previously on our blog, we discussed how more complex contracts allude to other existing contracts and documents. Incorporation by reference is the method of making these alluded-to documents part of a contract, and is often used to save space when parties want to include or reference another legal document or contract into a new contract. To properly incorporate another document by reference, it has to be adequately described in a new contract, and it is good practice also to attach a copy of the referenced document to the new contract to which it is being incorporated.

The concept of incorporation by reference is similar to that of flow-down contract clauses in construction contracts.  For example, a flow-down clause is used to bind subcontractors to the general contractor in the same fashion as the general contractor is bound under its contract with the property owner. In the same vein, subcontracts usually incorporate general contracts by reference.

When drafting an incorporation by reference clause, parties have the option to incorporate certain provisions of an existing legal document, or the entire document. If the parties make it clear that only certain provisions are to be incorporated, the incorporation by reference clause should be explicitly clear in its limited scope and purpose. However, if the incorporation clause is very general, this could lead to potential disputes about which provisions to a contract were incorporated. To avoid any confusion, parties should specify exactly which terms are being incorporated.

Any time existing legal documents are incorporated by reference, there is a potential for conflicting terms. It is therefore important that all provisions are reviewed for conflicts, and a contract provision dictating how conflicting terms will be resolved should also be included.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

Defining Conflicting Terms in a Contract

Conflicting terms in a contract exist when there are certain provisions that cannot each be complied with because performing one would violate another, or where the use and meaning of a particular term or terms varies throughout the contract. This situation can occur  when multiple parties are drafting and revising a contract without carefully reviewing the impact of each change on other portions of the contract, or when conflicting changes are made to a standard form contract that one or more parties are not entirely familiar with, and again, do not carefully review the impact of each change.  Conflicts can also occur when the terms used in the agreement are not defined and are unclear to people unfamiliar with the deal, industry, or product.

For example, sometimes other contracts or documents are alluded to in a contract but not actually defined in the agreement.  A contract could also rely heavily on terms that are defined by industry standards but which are foreign to people outside of the industry. All of these situations cold give rise to potentially conflicting terms, such as a reference to a term where the industry meaning and usage is in conflict with the meaning and use applied  in the contract.

A properly drafted contract will avoid conflicting terms and ambiguities, and, in anticipation of potential conflicts, include clauses which provide rules of interpretation. Contracts can also designate clauses in one portion of a contract to supersede conflicting provisions found in another part of the contract. Almost every contract will have a provision stating that if one provision is in conflict with another, the rest of the contract is still enforceable, and provide how the conflicting terms will be handled.

Also, a contract can very well provide a means for resolving conflicting terms and ambiguities, but still fail to resolve a conflict that arises under an unanticipated or obscure situation. In that situation, the contract parties can turn to California statutes and appellate court cases to find other rules of interpretation.

If you have any questions about conflicting terms in a contract, consult with an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

Obtaining a Variance to a Zoning Restriction

In order to build a development, home, or addition that does not comply with local zoning ordinances or restrictions, a property owner or developer must obtain a variance. The exact process of obtaining a variance will vary based on applicable city or county laws, and can vary depending on the scope of the project and the type of variance sought.

For example, there could be different processes or requirements for “residential use” variances versus “residential area” variances.  Generally speaking, there are two types of variances: an “area variance” and a “use variance.” An area variance can be requested by a property owner or developer who is seeking an exception to a regulation dealing with land configuration or physical structure improvements.  A use variance, on the other hand, seeks an exception to the type of use of land permitted by a zoning ordinance or restriction.

Similarly, the process or requirements for residential variances differ as compared to variances for agricultural, industrial, recreational, or commercial property.  Once you have determined the type of variance you will need, the next step will be to contact the local city or county government office that handles development in the area where the property is located.  The local government office will usually have an application that must be completed, and typically require copies of relevant site plans, floor plans, and elevation drawings, as well as the payment of any fees associated with application submission.  Once complete, a city board will review your application and may require public hearings on the application.  If the variance request is denied, there is generally an appeals process.

If you have questions about obtaining a variance, consult an experienced attorney. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.